Marcus & Millichap, Inc (NYSE:MMI), a Calabasas, California-based national brokerage firm specializing in commercial real estate investment sales, financing, research, and consulting, plans to raise $90 million in its upcoming IPO. The firm will offer 6 million shares (including 45% insider shares) at an expected price range of $14-$16 per share. If the IPO can reach the midpoint of the expected range at $15 per share, MMI will command a market value of $531 million.
MMI filed on September 23, 2013.
Joint Bookrunners: Citi, Goldman Sachs
Co-Manager: JMP Securities, William Blair
MMI is a leading national commercial real estate investment broker; it is the top commercial real estate investment broker in the United States in terms of number of transactions over the past 10 years. The firm's over 1100 investment sales and finance professionals are spread across 73 offices, and closed more than 6100 sales and financing transactions for a total volume in the neighborhood of $22 billion in 2012. The firm's business is concentrated on the private client segment, meaning transactions with price tags beneath $10 million, which constitutes over 80% of the total number of property transactions in the commercial real estate market.
MMI offers the following figures in its S-1 balance sheet for the six months ending June 30, 2013:
Total Revenues: $174,841,000
Net Income: $11,716,000
Total Assets: $48,020,000
Total Liabilities: $39,858,000
MMI has seen significant revenue and income growth over the past two years, with revenues rising from $274.7 million in 2011 to $385.7 million in 2012 and net income rising from $13.5 million in 2011 to $27.9 million in 2012.
MMI looks to be an attractive if not spectacular IPO to purchase in the $13 to $15 range. We like the fact that Goldman Sachs is a lead underwriter and that other real estate brokerage IPOs have performed fantastic this year.
The firm has turned in consistent profits and has a well-established corporate culture, having been established in 1971. MMI is the only firm with a national footprint that is focused on investment sales within the private client market; it also is focused centrally on the investment brokerage and financing business rather than leasing or property management. These qualities give the firm differentiation from its competitors, as national competitors usually focus on institutional real estate, while local and regional competitors simply don't have the same level of resources.
Somewhat concerning is the large percentage of insider shares included in the IPO (45%), meaning that a significant portion of the proceeds of the IPO will not go towards the development of the business. We also not that total compensation to the executives is very high as disclosed on pages 78 to 80 of the S-1.
The private client segment of commercial real estate is extremely fragmented and presents MMI with numerous competitors and significant difficulty in acquiring market share. CoStar and Real Capital Analytics estimates that in 2012, for sales in the private client segment, the top 20 investment brokerage firms in the country only made up 27% of the American commercial real estate market.
Major competitors in the private client segment include CB Richard Ellis (NYSE:CBG), Jones Lang (NYSE:JLL), Colliers International, NAI, Cushman & Wakefield, Cassidy Turley, and Lee & Associates. Some of MMI's competitors are better capitalized and have access to superior resources.
John J. Kerin has served in the positions of CEO and President since 2010; he joined the firm as a sales professional in 1981, and has been promoted within the firm repeatedly ever since. His total compensation for 2012 was $3,278,466 which seems excessive to us. Mr. Kerin received a BA in Communications from Loyola Marymount. He is joined by CFO Martin E. Louie, who has worked in senior financial executive roles with major firms including Sony Pictures Entertainment, Disney, Infineon Technologies and West Marine.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MMI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article was prepared partly based on the company's S-1. Investors should read the S-1 and consult with their financial adviser before making any investments